TheChek News Flow

Lidar company Luminar is slashing its workforce by 20% and will lean harder on its contract manufacturing partner as part of a restructuring that will shift the company to a more “asset-light” business model, as it aims to scale production.

The cuts will affect around 140 employees, and are starting immediately. Luminar is also cutting ties with “the majority” of its contract workers.

“Today, we stand at the crossroads of two realities: the core of our business has never been stronger across technology, product, industrialization, and commercialization; yet at the same time the capital markets perception of our company has never been more challenging,” billionaire founder and CEO Austin Russell said in a letter posted to Luminar’s website. “[T]he business model and cost structure that enabled us to achieve this leadership position no longer fit the needs of the company.”

Russell wrote in the letter that the restructuring will make it possible for Luminar to get products to market faster, “drastically reduce” costs, and set the company up better for profitability. The company said in a regulatory filing that the changes will reduce operating costs “by $50 million to $65 million on an annual basis.” The company is also reducing its global footprint “by sub-leasing portions or the entirety of certain facilities.”

Luminar will continue to operate its Florida facility, which is used for development, testing and research and development, according to spokesperson Milin Mehta.

Luminar announced in April that it had begun shipping production lidar sensors to Volvo to be built into the automaker’s EX90 luxury SUV. It also announced plans to deepen its relationship with Taiwanese contract manufacturing company TPK Holding. TPK has “committed to an exclusive relationship with Luminar,” Russell wrote in his letter.

Paris-based Thales looks like a plain-vanilla defense stock and trades like one. Its artificial-intelligence component sets it apart.

What happens if you take the best parts of Lockheed Martin and combine them with artificial-intelligence darling Palantir Technologies? You get French defense company Thales—and its stock looks like a winner.

Paris-based Thales (pronounced TAL-us) is far from a household name. The company has three divisions—Defense and Security, Digital Identity and Security, and Aerospace. Of the three, the defense unit, which makes computer systems for airplanes and radar, sonar systems for submarines, and helps John F. Kennedy International Airport in New York defend itself against cyberattacks, produces the most sales—some 2.3 billion euros ($2.5 billion) in the first quarter, or 52% of Thales’ revenue. It also produces the fastest growth—its sales rose 13.1% over the past 12 months, and orders climbed 128%. In March, Thales said it was aiming for organic sales to increase between 4% and 6% this year and for its margins to increase to as high as 12%, guidance it reiterated this past week.

Since Thales looks like a plain-vanilla defense stock, it trades like one, too. At 17.8 times 12-month forward earnings, its multiple isn’t all that different from Lockheed Martin, which fetches 17.5 times; RTX, which goes for 18.2 times; or BAE Systems, which trades for 19.2 times. Thales’ AI services business, which it is embedding in products across the company, makes it anything but a run-of-the-mill defense contractor. Artificial intelligence is already helping to boost sales across the company. In the fourth quarter, it booked 13 large orders, including a €2 billion contract with the U.K. Ministry of Defence to help the Royal Navy incorporate AI into its maritime operations. It also signed a deal with the United Arab Emirates for pilot training on French Rafale jet fighters.

Ultimately, the realization that AI can boost growth across the company should justify a higher valuation.

“Thales is at the forefront of Cyber and Artificial Intelligence,” writes Deutsche Bank analyst Christophe Menard. “When synergies with the rest of the group become fully apparent, the stock could continue rerating, with tech peers as potential benchmarks.”

The most obvious comparison is American tech darling Palantir, which makes AI software for analyzing massive amounts of data and boasts the U.S. government as its biggest customer. Its products can manage deployments and streamline decision-making, among other functions. Caught up in the AI boom, Palantir has gained 195% over the past year and trades at 65.8 times 12-month forward earnings.

No one should expect Thales, which has gained 14% over the past 12 months, to earn a Palantir-like multiple or even produce the same type of gains. Hardware is more capital-intensive than software, and Thales is neither an AI nor defense pure play. Its smart card business was a drag on the digital identity unit, while its satellite business was coping with project delays and weakening demand. The company, though, said in March that it can improve margins in those areas, while allowing the other businesses to shine.

“With the risk to space and smart card estimates now largely relegated to history and 2024 guidance broadly consistent with expectations, we are now more comfortable with the risks/reward trade-offs,” Barclays analyst Milene Kerner wrote in March, though she wasn’t comfortable enough to change her Equal Weight rating and €150 price target on the stock—5% lower than its current price around €158.

Deutsche Bank’s Menard, though, sees more upside. He has a €180 price target on the stock, 14% higher than currently, based on a combination of discounted-cash-flow, sum-of-the-parts, and free-cash-flow methodologies. Based on free cash flow alone, the stock would be worth €190, up 20%.

Those valuations are primarily driven by the view that Thales is a defense company, and until recently it hadn’t been presenting itself an AI company. That has started to change. At its March 28 Media Day, Thales announced the creation of a research group called cortAIx that will highlight its artificial-intelligence capabilities. It’s so confident of those abilities that when asked on its April 30 conference call about making an acquisition to boost its AI efforts, Chief Financial Officer Pascal Bouchiat responded in the negative.

“We have no interest on M&A on AI, and the reason is quite simple,” he explained. “I mean, we’ve got everything we need from the inside, from Thales’ standpoint.”

For now, the stock is still flying under the radar. It might not be for long.

Spring is here, baseball’s back and days are longer, so it’s pretty easy to miss some of the more intriguing rounds announced by startups in April.

Don’t worry, we selected a quintet of eye-catching startups raising cash that will keep you up on what you may have missed in the past month.

California has seen 13 of the state’s 20 most destructive wildfires in history since 2017. Perhaps it’s not surprising, then, that a startup nestled in San Francisco is looking at ways to prevent such disasters.

BurnBot raised $20 million in financing led by ReGen Ventures last month. The robotics startup says it has developed remote-controlled vehicles — which look basically like a Zamboni — that can eat up and burn away plants or other dry vegetation that fuel destructive wildfires.

The idea is a good one as it tries to move the fire-prevention industry away from more dangerous or slow-moving solutions such as grazing away the vegetation with goats, burning it off or using toxic herbicides.

California aims to treat 1 million acres annually and the U.S. Forest Service has a goal of treating 50 million acres over the coming decade. Maybe a vegetation-eating Zamboni is just what’s needed.

All parents want what’s best for their children. But getting the right diagnoses and the proper care can be difficult the younger a child is, especially for developmental issues such as autism.

Decatur, Georgia-based EarliTec Diagnostics raised cash last month to help, locking up a $21.5 million Series B co-led by Nexus NeuroTech Ventures, which focuses on companies trying to treat brain disorders, and Venture Investors.

The startup says it can diagnose children as young as 16 months old. That’s important since studies suggest the earlier a child gets diagnosed the better the developmental outcomes.

EarliTech uses an FDA-authorized approach in which a child watches videos of social interactions on a screen and AI tracks the child’s eye movements to assess the level of function on characteristics of autism — social disability, verbal ability and nonverbal learning.

Autism is on the rise, with 1 in 36 children in the U.S. diagnosed with it — up from the previous rate of 1 in 44 — per the CDC. Getting earlier diagnoses may not stop that trend but could certainly help with care and development.

Well, folks looking for animal-free eggs likely won’t be pairing them with ham, but they may soon be able to find such a thing more easily.

Helsinki-based Onego Bio raised a big $40 million round last month led by Japanese-Nordic VC NordicNinja. The startup aims to manufacture real egg protein entirely animal-free.

While animal-free meat has been a thing for a while, we are not as familiar with animal-free eggs. The startup uses fermentation to manufacture real egg protein entirely animal-free using their ingredient, Bioalbumen.

Onego claims the product results in identical taste and nutrition, and more than a 90% smaller environmental footprint, compared to eggs from chickens. The company plans to use the fresh cash to scale up its North American go-to-market strategy, so it may be in the grocery store aisles on this side of the Atlantic sooner rather than later.

This is definitely the first time two Finnish startups have made this list.

NPHarvest snatched up about $2.4 million in a round led by Nordic Foodtech VC. The Finland-based startup has developed hardware for the collection and recycling of nutrients from wastewaters such as rain. The company plans to use the cash to build its first commercially ready “Nutrient Catcher,” which will be installed at its clients’ facilities.

The startup says its treatment equipment is able to separate and collect all excess nutrients from wastewaters — mainly ammonia salt — which can then be recycled and used in fertilizer.

Getting the most out of wastewater to help with food insecurity isn’t necessarily a new idea, but this method is novel.

Colossal Biosciences — which is trying to solve de-extinction — has made this list before, but now the Dallas-based unicorn is incubating companies making this list.

Breaking, a plastic degradation and synthetic biology company, launched in April and announced it’s already raised a $10.5 million seed round from the likes of Climate Capital, Carnrite Ventures, Builders VC and Animal Capital.

The Boston-based company says it has discovered a microbe, called X-32, that destroys multiple types of plastics by quickly breaking down hydrocarbon chains across different chemical structures.

According to the company, the microbe can degrade 90% of polyolefins, polyesters and polyamides — leaving behind carbon dioxide, water and biomass — in as little as 22 months.

Plastics are a growing environmental problem — 5 billion tons of plastic are sitting in landfills, oceans and our ecosystems, per Breaking — so a new microbe that can make it degrade faster may be part of the solution.

Apple trails in introducing AI applications, but it says innovations are coming soon

A fall in Apple’s AAPL 5.98%increase; green up pointing triangle sales in China—even after a rare discount on iPhones—shows that some consumers there no longer see Apple’s flagship product as the most advanced in technology.

For one thing, iPhones don’t yet feature the built-in artificial-intelligence functions offered by rivals such as China’s Huawei.

Apple said Thursday that global sales in the January-March quarter fell 4.3% compared with the same period a year earlier. A big reason was China: Sales in what Apple calls “greater China,” including mainland China, Taiwan, Hong Kong and Macau, dropped by 8% to $16.4 billion.

Counterpoint Research, a market-research firm, said iPhone unit sales in China fell nearly 20% in the quarter. The iPhone lost its No. 1 spot among smartphone brands in the country, falling to third behind the local rivals Vivo and Honor.

Consumers in China cited the absence of major advancements in hardware and performance as a reason to refrain from getting a new iPhone. Some are switching to Huawei, which has put out advanced phones despite U.S. sanctions, while others are keeping their old iPhones longer.

Tracy Xu, a 41-year-old Shanghai-based human-resources manager, said she found Huawei’s camera, battery life and phone reception superior to the iPhone’s.

She had considered switching to an iPhone after she had trouble using Google Maps on family trips overseas, a hurdle caused by sanctions preventing Huawei from using the latest Google Android smartphone software. Then she unearthed a Chinese app that helped her overcome the problem and access internationally used Android apps.

“I have even less of a reason to switch to an iPhone,” she said.

Apple executives said they remained confident in the China business. Chief Executive Tim Cook said on a conference call that some iPhones were the top-selling smartphones in urban China, and he said a recent trip to the country had left him optimistic for the long haul.

“There’s a high level of interest and excitement for our brand. The brand is very strong in China,” said Luca Maestri, Apple’s chief financial officer, in an interview.

Following the company’s China comments and better-than-expected earnings report, shares of Apple rose nearly 6% Friday, its biggest one-day jump since November 2022. So far this year, the stock has fallen 4.8%.

Most of Apple’s recent phone models sell for more than $600 in China and around the globe, while Chinese rivals have broader lineups with a better chance of capturing consumers during the country’s current economic doldrums.

Yu Deng, a 35-year-old iPhone user from central China’s Hunan province, recently looked at replacing his wife’s iPhone 13 to get more storage for family photos and videos. He said the couple decided against doing so after concluding that replacing the phone’s batteries and upgrading iCloud storage would give them what they needed for less money.

Deng said recent iPhone releases didn’t offer much excitement and seemed to bring minimal hardware improvements. He said he was still an iPhone fan, but “Android devices do offer more competitive features nowadays.”

Apple, which usually shuns discount sales, ran a multiday promotion in China in January, cutting the price of iPhones by the equivalent of up to $70. The promotion came ahead of the Lunar New Year holiday, a traditional gift-giving season.

Huawei, which lost access to advanced chips owing to U.S. sanctions, staged a comeback last year with self-developed chips that made its phones compatible with the latest high-speed technology known as fifth-generation, or 5G.

In April, Huawei introduced new models, the Pura 70 series, ranging from about $760 to $1,500, with even more-powerful chips than before.

While most Chinese consumers say they pick a phone based on price and performance, geopolitical tensions aren’t helping Apple. The Chinese government has banned the use of iPhones in government agencies.

Huawei’s unit sales in China grew 70% in the January-to-March quarter, according to Counterpoint. It found that in China’s premium smartphone market, increasing competition from local brands has caused the iPhone 15 series to underperform overall, although the iPhone 15 Pro Max continues to dominate the topmost segment.

The leading Chinese brands including Vivo, Xiaomi, Huawei and Honor have recently introduced smartphones that use AI for purposes such as translating languages and creating and editing images.

Samsung Electronics also entered the AI smartphone market, helping the South Korean company surpass Apple in global smartphone shipments in the first quarter, according to the research firm Canalys.

Under Counterpoint’s definition, more than 10 phone makers have introduced more than 30 smartphones with generative AI capabilities, which have become familiar through such programs as ChatGPT. None of those models comes from Apple—yet.

“We see generative AI as a very key opportunity across our products, and we believe that we have advantages that set us apart,” Cook said on the conference call.

He said Apple would say more about its AI initiatives in the weeks ahead. The company is widely expected to do so at its Worldwide Developers Conference in June.

Around the world, Apple holds an advantage in the way it integrates products such as smartphones, tablets, watches and laptops into a single enclosed system, helping users enjoy a unified experience. Apple said earlier this year that there were 2.2 billion devices in circulation at the time using its iOS operating system.

That could serve as a platform for a new growth spurt in China and elsewhere once Apple joins the race to fully integrate AI into smartphones. Analysts said AI was likely to become an essential feature in midrange to high-end smartphones from next year.

U.S. defense needs are pushing revival effort after decades of deindustrialization

The American war machine depends on tiny bits of metal, some as small as dimes. Rare-earth magnets are needed for F-35 jet fighters, missile-guidance systems, Predator drones and nuclear submarines.

The problem: China makes most of the world’s rare-earth magnets, with 92% of the global market share.

Now, Washington is doling out hundreds of millions of dollars in grants and tax credits to revive magnet-making in America. Defense manufacturers are on a clock.

A U.S. law in 2018 restricted the use of made-in-China magnets in American military equipment, shriveling the list of potential suppliers to a small number in Japan and the West. By 2027, the curbs will extend to magnets made anywhere that contain materials mined or processed in China, covering nearly all of the current global supply.

After three decades of post-Cold War deindustrialization, rebuilding the industry—against China’s market heft—is an uphill battle, even with government help. Only one company in the U.S. is in production of the dominant type of rare-earth magnet.

“We’re not going to be able to simply flip a switch and get to where we want to be,” said Anthony Di Stasio, a senior U.S. defense official. “The only thing that you can really judge success on right now is how many positive ripples have you made from throwing the rock into the lake.”

The office Di Stasio runs in the Defense Department is diving into supply chains to invest in the pieces and parts that make the military work. Much of what they invest in is processing minerals and making metals, betting that regardless of how, for example, submarine technology evolves, the same building blocks will be needed.

The Defense Department in the past few years has committed more than $450 million toward rare earths and the magnets they power. The Energy Department is offering its own incentives because the magnets are also critical for electric vehicles.

The funding is helping a German magnet-maker set up its first North American factory, which broke ground in March, two decades after its last U.S. factory shut down. The facility, in Sumter, S.C., will buy rare earths locally. Those supplies could come from other projects that are receiving government funding—such as processing plants coming up in California and Texas, owned by American and Australian miners, respectively.

Their highest hurdle is low Chinese prices. A U.S. Commerce Department probe in 2022 found that China’s dominant position enabled it to set prices low enough to make production unsustainable for competitors.

In the West, mines and processing facilities face more regulations. There are only a small number of experts left in the field, requiring pricey workarounds such as importing foreign talent, sending Americans abroad for training and automating.

“If you want it to be commercially viable, how are you going to accomplish it, because there’s a reason we don’t do it domestically anymore,” said Moshe Schwartz, a senior fellow for acquisition policy at the National Defense Industrial Association, a trade group representing the defense industry.

Pushing defense suppliers to buy more-expensive magnets that are made in the U.S. would raise costs and have a knock-on effect, potentially affecting how many defense systems such as submarines and jet fighters the Defense Department is able to buy, Schwartz said.

The other question is who else will buy the magnets. Defense demand, while considerable, isn’t enough. Other industries that use magnets, such as makers of EVs, wind turbines and MRI machines, would need to be willing to pay more today in exchange for a reliable supply chain.

At least one major player, General Motors, has agreed to buy American-made magnets when production starts. Some others say they are interested.

“If you think about how many bloody noses and black eyes and coronaries people had over the past two years over supply-chain disruptions, and how many millions were lost, having a regionally or near-shored product…is very valuable,” said Kirk Anderson, director of government affairs for Nidec Motor, a Japanese company that manufactures motors in the U.S.

Nidec is in talks to buy magnets from a U.S. company that has received government funding.

‘Scattered to the four winds’

The first rare-earth magnets were discovered in the 1960s by scientists at a U.S. Air Force laboratory. In the following two decades, military investments led to more-powerful versions capable of maintaining their pull in extremely high and extremely low temperatures. That allowed for new engineering feats, such as the advanced electronic-warfare systems of F-15 jet fighters that can work up to 70,000 feet in the sky.

These magnets were expensive, limiting their applications. In the 1980s, scientists at GM and Sumitomo, a Japanese company, separately invented a new type of rare-earth magnet. They used less-expensive materials but which were so powerful they could attract objects hundreds of times their own weight, improving the torque and efficiency of electrical motors, said John Ormerod, an industry consultant.

By the late 1980s, the U.S. was one of the top producers, second only to Japan. The minerals were mined and processed in California and manufactured into magnets in the Midwest. GM spun off a magnet division called Magnequench, selling to the auto, electronics and defense industries.

By then, China had entered the game. A Chinese rare-earth mining boom coupled with lower Asian labor costs eroded U.S. advantages. In 1995, GM divested from Magnequench, which was acquired by an investment group that included a Chinese state-run company. The deal was approved by the U.S. government.

One engineer, Mitchell Spencer, was dispatched to the port city of Tianjin in 1998 to help set up what he was told would be a sister factory to the magnetics plant in Anderson, Ind. Shortly after he returned to Indiana, Magnequench closed the Anderson plant and eventually its entire U.S. manufacturing operations.

“I built my own gallows,” Spencer said. U.S. talent, he said, was “scattered to the four winds.”

Back to the future

The breakdown in supply chains during the Covid-19 pandemic rang alarm bells. Pandemic-era funding enabled the government to back Texas-based Noveon Magnetics, a startup that had begun small-scale magnet production in 2018. The company received around $29 million to boost production at its San Marcos, Texas, facility.

Magnets made there are used in cruise missiles, missile-defense systems and helicopters.

As tensions with China rose, the Defense Department between 2020 and 2022 announced $45 million in funding for MP Materials—America’s dominant rare-earth miner—to set up facilities to process minerals in the U.S. The first such facility came online last year. The company plans to start making magnets in Texas by next year.

Around $250 million also went to Australia’s Lynas Rare Earths to build a rare-earth processing complex in Seadrift, Texas. Last year, the government announced nearly $100 million for the German company, VAC, for its South Carolina magnet-making facility.

VAC had hung on for decades as one of the West’s few rare-earth magnet makers and now plans to mass-produce magnets at its U.S. facility. It has sent U.S. workers to Germany for training, and will automate to save on costs. Its magnets will be around 50% more expensive than Chinese ones depending on the specifications, executives said.

Companies have encountered unexpected challenges, including an organized campaign by fake pro-China social-media accounts that cybersecurity researchers dubbed “Dragonbridge.” After Lynas, the Australian producer, announced its Texas plant, a flurry of online posts from accounts posing as locals argued the project would be environmentally destructive and affect community health.

More recently, a drop in prices of rare earths, caused in part by expanding Chinese production, has raised concerns over new projects. On an earnings call held earlier this year, an analyst asked executives at MP Materials if they would reconsider their plans given current low prices.

“What I would tell you on that is that we’re talking about a Western-world supply chain that basically doesn’t exist,” said Chief Executive James Litinsky. “Even though the environment is tough, from what we’re hearing from customers, there’s still a desire for this supply chain to exist.”